Unlocking the potential of UK mid cap companies
This communication is for investment professionals only and must not be relied
upon by retail clients. Circulation must be restricted accordingly.
Chris St John, Fund Manager of the AXA Framlington UK Mid Cap Fund
17582/CR50548
Biography
Chris joined AXA Framlington in 2005. He is the lead manager for the AXA Framlington UK Mid Cap Fund
and several pension funds.
He started his career at PricewaterhouseCoopers in 1995 as part of the London Middle Market Business
Advisory Service. After a short period in the Corporate and International Tax department, he moved to
Corporate Finance. He subsequently joined ISIS (which later became Foreign & Colonial) where he
progressed from an equity analyst onto becoming a lead Fund Manager on four institutional FTSE Small Cap
Funds. In 2003, he was promoted to lead Fund Manager of the UK Small Cap retail Funds.
Chris graduated from Durham University with an honours degree in Philosophy and Psychology in 1995. He
qualified as a Chartered Accountant in 1998.
Chris St John
Fund Manager
Source: AXA IM as at 31/06/2013.
1 17582/CR50548
AXA Framlington UK Mid Cap Fund performance
Source: Graph: Lipper as at 31/07/2013, Net income, Bid to Bid, net fees. Fund, IMA & Quartile: Lipper, Net Income, Bid to Bid. Net Fees. *AXA Framlington
UK Mid Cap Fund Institutional Share Class. **Rank vs IMA UK All Companies. Z institutional share class used in the IMA peer group. Inception date
04/03/2011. NB: Past performance is not a guide to future performance.
Strong outperformance relative to comparative benchmark
Performance since inception 04/03/2011 (net)
2 17582/CR50800
YTD 1yrSince
inception
AXA Framlington UK Mid Cap Net* 30.12 45.88 57.70
FTSE 250 Mid (ex IT) TR 23.61 40.25 39.75
Net performance relative to comparative benchmark 6.51 5.64 17.95
Rank** 7/268 16/267 8/260
Quartile 1 1 1
0
50
100
150
200
Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13
AXA Framlington UK Mid Cap Z Acc IMA UK All Companies
FTSE 250 Index – Strong performance
… this is an asset class worth considering
Source: Lipper, percentage growth total return. Data shown from 31/12/1999 to 31/07/2013. NB: Past performance is not a guide to future
performance.
3 17582/CR50800
0
50
100
150
200
250
300
350
400
450
500
Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13
FTSE All-Share TR
FTSE 250 Mid (X It) TR
MSCI World TR GBP
FTSE A British Govt All Stocks TR
207.87 FTSE All-Share TR
448.66 FTSE 250 Mid (X It) TR
210.86 MSCI World TR GBP
232.80 FTSE A British Govt All Stocks TR
1970
19711972
1973
1974
1975
1976
19771978
1979
1980
19811982 1983
198419851986
198719881989
1990
1991
19921993
199419951996
1997
1998 1999
20002001
2002
R2 = 0.7525
-5
0
5
10
15
20
4 6 8 10 12 14 16 18 20 22 24 26 28
Starting period PER (x )
Av erage annual 10-y ear real
4 6 8 10 12 14 16 18 20 22 24 26 28
20
15
10
5
0
-5
Avera
ge a
nn
ual 10-y
ear
real re
turn
s (
%)
Starting period P/E
Equity valuation remains attractive relative to history
Source: Oriel Securities, January 2013. NB: Past performance is not a guide to future performance.
1974
1999
4 17582/CR50548
Why might this be?
Dynamic changing index
Market cap range £275m to £4.35bn
Market leaders
– Global
– Domestic
Less intense regulatory spotlight
Acquisition targets
Investors underestimate change and earnings growth
Strong balance sheets/beneficiaries of Cap ex
Potential long term attractions
5 17582/CR50548
Valuations attractive
FTSE 250 ex IT UK PE 12M Forward earnings 1998–2013
Source: Citigroup as at 28/08/2013. NB: Past performance is not a guide to future performance.
Valuations supportive of continued absolute returns
6 17582/CR50800
6
8
10
12
14
16
18
20
22
Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13
FTSE 250 12m fwd PE Average
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Net Upgrades/(Downgrades) FTSE 250
Realistic earnings expectations
24 months of net downgrades
2012/2013 IBES Consensus PAT* growth of 3.8% seems reasonable (2013//2014 PAT Growth 7.1%)
2012/2013 IBES Consensus median PAT growth of 7%
Bottom up earnings forecasts are realistic in many cases
Source: Chart: Citigroup as at 31/07/2013. *Profit after Tax.
7 17582/CR50800
Diversification – geography
Source: FactSet as at 31/01/2013.
Split of sales generated by FTSE 250 companies
UK47%
North America
14%
Europe17%
Rest of the World
22%
Access to both domestic and global growth opportunities
8 17582/CR50548
0
5
10
15
20
25
30
Ind
ustr
ials
Oth
er
Fin
ancia
ls
Consu
mer
Serv
ices
Te
chnolo
gy
Util
itie
s
Consu
mer
Go
od
s
Te
lecom
s
Basic
Ma
terials
Health
Care
Ban
ks
Oil
& G
as
FTSE 250xIT FTSE 100
Diversification – sector
Source: AXA IM as at 31/07/2013.
Sector breakdown of FTSE 250 ex IT vs FTSE 100
FTSE 250 ex IT
%
FTSE 100
%
Largest stock weight 1.52 8.23
Top ten stocks 13.43 46.71
A broad industry exposure
9 17582/CR50800
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
10
CapEx as % of Sales (LHS) Net Debt/EBITDA (RHS)
Strong balance sheets/beneficiaries of CapEx
Source: Citigroup as at 27/06/2013.
Cash piles have grown
during downturn
presenting value
accretive
– organic growth
– dividend growth
– share buy backs
– Special dividends
(Spirax Sarco, ITV,
Elementis,
MoneySupermarket,
Victrex)
Low net debt and depressed capex bode well for long term
estimated
10 17582/CR50548
M&A targets – FTSE 250 Earnings yield vs UK BBB Corp bond yield
Source: Citigroup as at 27/08/2013.
M&A, CapEx, buy backs, dividends supported
11 17582/CR50800
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Aug 98 Aug 99 Aug 00 Aug 01 Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Aug 13
FTSE 250 Earnings Yield UK BBB Corp Bond Yield
There is always opportunity
Number of stocks in the FTSE 250 with total shareholder return in excess of 20% between
2000 and 2013
73
30
17
147
102
119
131
40
10
153
124
25
129
68
0
20
40
60
80
100
120
140
160
180
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
YTD
No
. o
f c
om
pa
nie
s
Source: AXA IM as at 26/06/2013.
Stockpicking paradise
12 17582/CR50548
AXA Framlington UK Mid Cap Unit Trust
Name : AXA Framlington UK Mid Cap Fund
Fund manager : Chris St John
Launch date : 4 March 2011
Fund size : £23.3m
Number of holdings : 72
Fund structure : Unit Trust
Management fee : 0.75% (Institutional Class); £100k minimum investment
Comparative benchmark : FTSE 250 ex IT (used as a point of reference)
Parameters : Unconstrained UK Medium Capitalisation Portfolio
Exposure to FTSE 250 ex IT normally no less than 70%
Exposure to FTSE 100 normally no more than 15%
Typically 60-80 holdings
Normally no greater than 4% stock holding size
Source: AXA IM as at 31/07/2013.
Actively managed UK Mid Cap fund
13 17582/CR50800
Strategy / thematic views – economic tailwind rather than headwind
Supply side constraint
Self help/management change
UK survivorship
Service, service, service
Technological change
Essentra
Ashtead
Sports Direct
Spirax-Sarco
Rightmove
Favour market leading growth companies
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By Industry (%)
Source: FactSet as at 31/07/2013. * As at 03/09/2013. Comparative benchmark: FTSE 250 ex IT.
AXA Framlington UK Mid Cap Fund
Portfolio as at 31/07/2013
Top 10 holdings
FTSE 250 weighting = 78.7%*
Fund
%
Ashtead Group plc 2.38
Sports Direct International plc 2.25
Rightmove plc 2.02
Essentra plc 1.95
ITV plc 1.93
Senior plc 1.79
Howden Joinery Group PLC 1.76
St. James's Place Plc 1.66
Travis Perkins plc 1.64
Pace plc 1.53
Oil & Gas3%
Basic Materials2%
Industrials29%
Consumer Goods
3%
Health Care1%
Consumer Services
20%
Telecom Services
2%
Financials12%
Information Technology
7%
Utilities0%
Cash21%
15 17582/CR50800
Conclusion
FTSE 250 attractive asset class with enduring characteristics
Valuation not excessive in context of history
Starting dividend yield of circa 3%
Earnings growth realistic
Global GDP growth supportive of FTSE 250 companies
AXA Framlington UK Mid Cap Fund
Source: AXA IM as at 30/06/2013.
16 17582/CR50800
Important information
This communication is intended for Investment Professional use only and should not be relied upon by retail clients. Circulation must
be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited.
This communication does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research
and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other
members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no
responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter
into any investment transactions.
This communication should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or
product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily
represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No
representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of
the information contained herein.
Information relating to investments may have been based on research and analysis undertaken or procured by AXA Framlington for its own
purposes and may have been made available to other expertises within the AXA Investment Managers Group, who in turn may have acted upon
it. Information in this document may be updated from time to time and may vary from previous or future published versions of this document.
Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not
get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer
markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. The price of units and the
income from them can go down as well as up and investors may not get back the amount originally invested. An initial charge is usually made
when you purchase units. Your investment should be for the medium to long term i.e. typically 5-10 years. Changes in exchange rates will affect
the value of trust investments overseas.
AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited which is authorised
and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street, London
EC1A 7NX. Telephone calls may be recorded for quality assurance purposes.
17 17582/CR50548
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